GAZETTE NOTICE NO. 1239

IT IS notified for the general information of the public that pursuant to section 55 (3) of the Retired Benefits Act, 1997, the Retirement Benefits Authority issues the Retirement Benefits Practice Notes for the Determination of Defined Benefits Obligations as set out in the Schedule. SCHEDULE Citation 1. These Practice Notes may be cited as the Retirement Benefits Practice Notes for the Determination of Defined Benefits Obligations. Interpretation 2. In these Practice Notes, unless the context otherwise requires— “accrued benefits” means benefits earned in respect of service earned up to a particular point in time; “actuarial certificate” means a statement provided by an actuary quantifying the financial implications of proposed amendments of the scheme; “actuarial liability’’ means the monetary value of the future benefits stemming from the members accrued benefits as calculated by the scheme actuary, in accordance with the scheme provisions and existing legislations; “actuarial valuation” means an assessment by an actuary on the financial soundness of a defined benefit scheme; “annuity” means an insurance contract that pays regular income during the life of a member; “commutation factor” means the cost of one shilling of pension payment for the lifetime of a member by the scheme, as determined by an actuary; “defined benefit scheme” means a scheme which offers a form of guaranteed benefit to the members of the scheme and includes hybrid scheme and post-retirement medical fund which offers a benefit guarantee; “defined contribution scheme” means a scheme in which members and employers contributions are fixed either as a percentage of pensionable earnings or as a shilling amount, and a member’s retirement benefit has a value equal to those contributions, net of expenses, including premiums paid for insurance of death or disability risks, accumulated in an individual account with investment return and any surpluses or deficits as determined by the trustees of the scheme; “early retirement factor” means an adjustment to the pension payable to a member of a scheme who has attained the early retirement age of the scheme in lieu of early access of benefits before the normal retirement age; “hybrid scheme” means a pension scheme that has the features of both a defined benefits and defined contribution scheme; “incentive exercise” means a payment or concession made by the employer to encourage the members of a defined benefit scheme to transfer out of the scheme or modify the members’ benefits in order to reduce risk or costs associated with defined benefit scheme; “income drawdown” means an arrangement that allows members of a scheme to access their accumulated retirement benefits as a regular income through reinvesting their benefits from an income drawdown fund registered by the Authority; “late retirement factor” means an adjustment to a member payable to a member who remains in active service of the employer past the normal retirement age of the scheme; “scheme actuary” means the actuary appointed to advice the trustee of a retirement benefit scheme; “surplus” means an excess of the value of a scheme’s assets over the actuarial liabilities; 360 360 “transfer value” means the amount determined by an actuary as the present value of the benefit entitlement of the members, which can be transferred out of the scheme at a particular time; “trivial pension” means any amount which shall be from time to time, as determined by the Authority, which shall not be less than fifty per cent of the average minimum wage prescribed by the Cabinet Secretary for the time being responsible for matter relating to labour in the year in which the benefits become due; “trust deed” means a legal instrument constituting a scheme to which the rules form the schedule and shall be deemed to form an integral part; and “underfunded scheme” means a scheme whose assets are less than the actuarial liabilities. Objects of these Practice Notes 3. The objects of these Practice Notes are— (a) to provide guidance to the trustees, sponsors, administrators and actuaries of a defined benefits scheme on the determination, processing and discharge of benefits; (b) to enhance communication to members of a defined benefits scheme and handle dispute resolution with the scheme; and (c) to ensure the protection of members benefits in a defined benefit scheme. Application of these Practice Notes 4. (1) These Practice Notes shall apply to defined benefit schemes registered by the Authority in respect of the duties and the responsibilities of sponsors, trustees, administrators and actuaries in relation to the discharge of members’ benefits obligations. (2) These Practice Notes shall not apply to defined contribution schemes. Principles of these Practice Notes 5. These Practice Notes shall espouse and promote the following principles— (a) fair and equitable treatment of members and sponsors; (b) good governance; (c) justice; (d) transparency and accountability; and (e) efficiency. Communication and Disclosure 6. (1) The trustees of a defined benefits scheme shall communicate in writing any changes in the benefit structure of the scheme within thirty days after making the changes. (2) Trustees shall ensure that any communication to members is comprehensive, simple clear, accurate and impartial. (3) Benefit statements generated for members shall include notes clearly explaining the contents of the statements. (4) Trustees shall ensure that the existing members of the scheme are supplied with a benefit calculation schedule or access to a portal for such calculations outlining the determination of members benefits. (5) The benefit calculation schedule or access to a portal for such calculations shall be furnished to members before trustees process the members’ benefits. (6) The trustee shall ensure that members affirm that they have understood the calculations in the benefit schedule or in the portal and consent to the benefit being paid. (7) Members shall be given full disclosure of the options available to them including the right to access a trivial pension as a lump sum. (8) Trustees shall ensure that members receive full and proper advice on the implications of transferring out of the defined benefit scheme or participating in an incentive exercise. (9) Each member shall be given a period of at least thirty days to exercise an option which affects the nature of the member’s benefits. (10) Trustee shall make available a copy of the actuarial valuation report to members upon request within a period not exceeding seven days (11) Commutation factors, early retirement factors and late retirement factors shall be disclosed to members through the actuarial valuation report. Amendment of Scheme Rules 7. (1) A defined benefit scheme may amend the provisions of the scheme rules if— (a) the amendment shall not reduce the accrued benefits of a member; (b) the amendment shall not invalidate or reduce the accrued rights of members or interests of the sponsors; and (c) the amendment shall only apply to future benefit accruals. (2) Where scheme rules have been amended in terms of subparagraph (1), the trustees shall be required to split pensionable services for respective scheme rules whenever they introduce an amendment that alters members benefits. (3) Any retrospective application of the effective date of the amendment of scheme rules may only be considered if the amendment improves members benefits. (4) Any changes in the benefit design shall be consistent with the Act and any other relevant written law. (5) An amendment to scheme rules shall only be actionable after approval and registration of a deed of amendment by the Authority. (6) Where there are conflicts in the legal provisions of the scheme, the provision that is most advantageous to the members shall be adopted: Provided that if any amendment affects the financial position of the scheme, the trustees shall prepare and submit an actuarial certificate to the Authority. Calculations and Determinations 8. (1) Members benefits shall be conferred by the trust deed and rules of the scheme or other relevant written laws. (2) The trustees shall be responsible for the determination of benefit entitlement to the members of the scheme. (3) The trustees shall consider actuarial advice in establishing the following— (a) the funding level of the scheme in the statutory actuarial valuation exercise; (b) commutation or withdrawal factors; (c) early retirement and late retirement factors; (d) the cost of discretionary pension increases; and (e) the format and contents of the annual benefits statement. (4) The trustees shall furnish the actuary with accurate and complete information in every material respect for the purposes of the calculation or determination under subparagraph (3). (5) The actuarial valuation reports shall include the commutation or withdrawal factors and early retirement or late retirement factors that will be applicable up to the date of subsequent actuarial valuations. Discharge of Defined Benefits 9. (1) Trustees shall ensure that members benefits are discharged in accordance with the provisions of the scheme rules. (2) Where trustees and sponsors intend to transfer to an insurance company the obligations of the scheme to pay members’ benefits, the following conditions shall apply— (a) the trustees shall ensure that the cost of the transferred liability is fully funded without compromising the security of any residual liability; 2nd February, 2024 THE KENYA GAZETTE (b) the trustees shall ensure that members’ rights and benefits are protected by ensuring that the transferred obligations mirror the provisions of the scheme; (c) trustees shall perform due diligence in procuring the underwriter for purposes of transferring the schemes obligations to members’ benefits; (d) trustees shall file a final report on the transfer and distribution of benefits with the Authority; (e) members shall be granted a period of at least thirty working days from the date of the notification from the trustees on the amount to be discharged within which the members may lodge complaints in respect of the benefits being transferred; (f) subject to the provisions of the Act or any other relevant written law, no claim may lie against the trustees or Authority once the transfer is finalised and the period for lodging complaint under item (e) has expired; and (g) all transfers under this paragraph shall be subjected to approval by the Authority. (3) Members of a defined benefits scheme shall not exercise the option of accessing their non-commutable benefits through an income drawdown arrangement. Members Expectations 10. Trustees shall manage members expectations by ensuring that— (a) any information furnished to members including members’ booklet is updated and reflects the provisions of the scheme rules; (b) members’ benefits are accurate; and (c) any past practices relating to the discharge of members’ benefits is well documented. Scheme Legal Instruments 11. (1) Trustees and sponsors shall ensure that the trust deed and scheme rules or the legal instruments establishing the scheme are— (a) up to date; (b) clear and precise; (c) consistent with the Act and Regulations thereunder; (d) duly executed by the trustees and sponsors and registered by the Authority; and (e) applied consistently and form the basis for the determination of benefits entitlements to members. (2) The trustees shall ensure that the resolutions of trustees and the sponsor or any other relevant communications including Government directives, policies which affect the operations of the scheme are included in the schemes legal instrument and complied with. (3) Trustees shall explicitly provide in the scheme rules on the manner of determination of benefits and the application of early retirement and late retirement factors where necessary. (4) Trustees shall explicitly provide in the scheme rules that pension increment and any discretionary increases shall be by resolutions of the board of Trustees and the sponsor. (5) Trustees shall provide in the scheme rules for compensation of interest for any arrears in benefits payment in line with the actuarial valuation interest rate of the scheme. (6) All scheme documents shall be prepared by the relevant professionals. Protection of Members Benefits 12. (1) Trustees shall ensure that that the sponsor complies with the funding requirements of the scheme as informed by the actuarial valuation of the scheme. (2) The authority may, at any time, direct the trustees of an underfunded scheme to pro-rate retirement benefits based on the level of the scheme and, in such a case, the sponsors shall be required to fund the balance of the payments outstanding to the members or beneficiaries. (3) Trustees shall ensure that any surplus is equitably distributed in accordance with the provisions of the law or any other Practice Notes issued by the Authority. Professionalism and Conduct of Service Providers 13. (1) Actuaries and administrators engaged by both the defined benefits scheme and the sponsors shall be required to declare any conflict of interest in the course of their work. (2) Where a trustee has any personal interest in the outcome of a matter the consideration of which is before the board of trustees, that trustee shall be required to declare such conflict of interest, and shall be recused from participating in the consideration and determination of that matter. (3) Each actuary, administrator, trustee and sponsor of a defined benefits scheme shall have an obligation to report any practice that may compromise the members’ benefits. (4) Each trustee, scheme actuary and administrators of a defined benefits scheme shall have an obligation to support the independent investigation of the scheme initiated by members or any other party: Provided the cost of the investigation shall not be borne by the scheme. (5) Actuaries and administrators of a scheme shall perform their duties in a professional manner and within the confines of their service legal agreements with the scheme. (6) Trustees, actuaries and administrators shall have a professional indemnity cover for any liabilities that may arise in the course of the exercise of their duties. Record Management 14. (1) The trustees of a defined benefits scheme shall ensure that the scheme maintains proper records on membership, benefits, resolutions, legal instruments, actuarial valuations, minutes and any other relevant records that relate to the determination of members benefits. (2) The scheme shall retain and store information in accordance with the Act and any other relevant written law. (3) The scheme shall avail all documents relating to determination of defined benefits upon request by the Authority. Conflict Resolution 15. (1) Each defined benefits scheme shall establish and maintain an internal framework for dispute resolution. (2) A member who is aggrieved by the actions or decisions of the trustees, sponsors or service providers may lodge a complaint with the Authority in accordance with the Act. (3) A member who dissatisfied with the decision of the Authority may appeal such decisions to the Retirement Benefit Tribunal in accordance with the Act and subsequently, to any court of competent jurisdiction. NELSON HAVI, Chairperson, Retirement Benefits Authority. CHARLES M. MACHIRA, Chief Executive Officer , Retirement Benefits Authority.